Careless Consumerism: How You’re Really Spending Eight Times as Much as You Thought

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“If you choose to spend a dollar today, you are actively choosing not to have four dollars, or six, or even eight later.”

Huh?

The WSJ’s Brett Arends explains what he means—and why he often shies away from instant gratification—by using an iPad as an example. Arends has mentioned more than once that he’s very anti-iPad. Why? Like a Slate writer who regrets his iPad purchase, Arends dares to question the gadget’s utility. Arends also likes to think about what would happen if, instead of buying an iPad, he uses the $500 he would have otherwise spent for some other purpose. By investing that money in the stock market, he might be able to get a 5% long-term return on his money, after factoring in for inflation. And, Arends writes:

At that rate, in 10 years’ time my $500 will have grown to about $800. That’s in today’s dollars—after inflation. In 15 years it’ll be about $1,000, and in 30 years, $2,000.

I figure I’ll be retiring in about 30 years, which is when I’m going to need lots of capital. I can have the iPad now, or about $2,000 then.

Thanks, but I’ll take the $2,000.

So a $500 gadget really costs $2,000 (or more) in the long run.

Everybody knows they’re supposed to avoid impulse buys—especially for stuff of dubious value—but if you consider these situations as Arends does, a careless consumer is wasting a lot more money than he thinks. (That’s if he thinks about this stuff at all, I suppose.)

Arends admits that this line of thinking can be taken too far:

I don’t want to die poor, and I don’t want to live miserably and die rich either.

There’s a somewhat related article at SmartSpending from Lindy, who usually posts at MintingNickels. Lindy relates the story of how her grumpy Grandpa Dick once took her to the mall to pick out a present for Christmas. Nine-year-old Lindy, in the midst of a fascination with penguins, picked out a clock featuring a penguin with red hands as clock hands. Grandpa Dick looked the item over, and gave the little girl his assessment:

“I’m not buying this. This is a piece of crap.”

What’s the point? There’s an upside to making little girls cry.

The grandfather died at age 89 last fall, and Lindy was recently presented with a check for $10,000 as her inheritance from Grandpa Dick’s estate. The check caused Lindy to reflect on the crusty old man’s approach to life and finances:

He owned a duplex in his retirement years, living in half of it and renting out the other half for income. We already know that he espoused a belief in buying only quality goods, whether it shattered a little girl’s dreams or not. And for many, many years, he drove the same gold 1973 Mercedes.

This man was able to retire at the age of 59, without ever having to call on his kids for financial assistance. Before and after he died, he was in a position to help his family out financially, precisely because of the way he lived–and that included refusing to indulge the whims of a little girl. Lindy used Grandpa Dick’s check to pay off credit card debt, and helped her see the wisdom of delayed gratification:

Grandpa Dick didn’t get me that penguin clock when I was 9. I don’t think he gave me anything for Christmas that year. But I think he’s given me the better gift.

So, would you rather have an iPad now, or $2,000 when you retire? Would you rather have a penguin clock as a 9-year-old, or $10,000 down the line?

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